Personal scandals and misdoings aren't limited to the world of politics. This time around, the CEO of Hewlett-Packard
While investors who owned shares of HP may have taken a financial hit as a result of recent events, that doesn't mean they are the only ones who got knocked. Mutual fund investors who owned funds with outsized exposure to HP may also be feeling the heat. According to data from Lipper, three Fidelity funds currently rank as the largest owners of HP shares. Here's what HP's troubles could mean for owners of these funds and what investors can do in response.
The downside of focused investing
Fidelity Select Computers (FDCPX) was reported to have a heavy 11.9% allocation to Hewlett-Packard, making it the fund's second largest position. The fund has dropped about 2.4% in the past week, no doubt hampered by its meaningful exposure to the stock.
This helps to demonstrate why I'm not a fan of narrowly focused, sector- and industry-specific funds. These types of funds aren't diversified and people tend to use them to chase returns and take a gamble on making a quick buck. As an example, this fund's largest allocation is to Apple
As tech spending rebounds, I think good things are in store for the technology sector, especially for low-P/E market leaders like IBM
Clocking in with an 8.6% weighting to Hewlett-Packard is Fidelity Congress Street (CNGRX), a low-turnover large value fund with roughly $44 million in assets. This fund hasn't been quite as affected by HP's movements, falling just 0.3% in the past week. Although the fund has a decent allocation to HP, the fact that it is more diversified and invests across the domestic market means there's not as much risk here. Although the fund has a decent tech allocation, more defensive consumer names like Coca-Cola
Although the fund's long-term track record is pretty decent, a new manager took over here in September 2007. She has done well in that time, but longer-term results would be a better indication of manager skill. At any rate, this fund appears to be closed to new investment of any kind, so allocating new money here isn't really a concern. Existing shareholders can probably sit tight here, but other investors can safely look to any number of other large-value funds for their needs.
Staying the course
Lastly, Fidelity Exchange Fund (FDLEX) is pretty much in the same boat as the Congress Street Fund. Both funds are run by the same manager and both are closed to all new investment. Hewlett-Packard is Exchange Fund's top holding, with an 8.2% allocation. The fund has dropped just 0.2% in the past week, protected by its well-diversified portfolio. Like Congress Street, reasonably priced, high-yielding consumer names are in favor right now, including Procter & Gamble
Ultimately, it pays for mutual fund investors to be aware of how their funds are invested, especially in the case of more concentrated funds. By staying diversified, you can avoid much of the worries associated with blow-ups at any single company.
In the end, I think much of the hype over the goings-on at Hewlett-Packard is overblown. Despite the turmoil at the top of the firm's management structure, the company still boasts a growing business line, healthy profits and market share, and decent return on equity for shareholders. If you thought HP was a good company before last week, then it's still a good company today and even more of a bargain, thanks to its recent tumble. If you're in the business of buying solid companies when temporary circumstances make them more affordable than usual, it might pay to take a second look at Hewlett-Packard.
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Amanda Kish is the Fool's resident fund advisor for the Rule Your Retirement investment newsletter. At the time of publication, she did not own any of the funds or companies mentioned herein. Coca-Cola is a Motley Fool Inside Value recommendation. Apple is a Motley Fool Stock Advisor pick. Philip Morris International is a Motley Fool Global Gains recommendation. Coca-Cola and Procter & Gamble are Motley Fool Income Investor recommendations. The Fool owns shares of Coca-Cola and Procter & Gamble and has written covered calls on Procter & Gamble. The Fool has a disclosure policy.